The First-In, Last-Out Method of Inventory Valuation.

Abstract The 1939 Income-Tax Act extends to all taxpayers the privilege of evaluating the final inventory on a first-in, last-out basis. The corollary permits the cost of goods sold to be determined in accordance with the assumption that goods purchased last are sold first. Official recognition is thus given to an additional method of evaluating inventory. The new method does not solve any of the technical difficulties encountered in pricing the goods on hand at the close of the period, since the procedure to be followed is merely the reverse of that called for by the last-in, last-out method. It therefore contributes nothing in the direction of simplicity. Effective support, if such exists, rests in some supposedly desired resultant in either the balance sheet or the income statement. It is probable that a predetermined end motivates the advocates of the first-in, last-out method: the desire to influence managerial decisions through a restatement of profits. That such a purpose is proper motivation for accounting procedure is questionable. Certainly it deviates from the goal of historical accounting; namely, the recording and presentation of facts.